German exports fell for the first time this year amid signs that the advancing
debt crisis is hitting Europe's powerhouse economy.

Poor economic data in France and Italy underscored the impact of Spanish instability on the euro area.

The Federal Statistics Office in Wiesbaden said exports, the pillar of the German economy, fell 1.7pc in April from the month before - far more than the 0.7pc expected by analysts.

At the same time, imports plunged 4.8pc - far over-shooting the 0.1pc decline forecast - suggesting a sharp fall in business and consumer confidence. Germany's trade balance fell to €14.4bn from €17.4bn.

The latest figures showed that German industrial production slumped 2.2pc in April because of falling foreign demand.

Andreas Scheuerle, an economist at Dekabank in Frankfurt, told reporters: "German companies feel that foreign demand isn't as dynamic as it used to be as the global economy is entering a weaker phase. The weakness originates in the euro area, where the debt crisis can no longer be felt only through budget cuts and austerity but increasingly creates uncertainty about economic prospects, which is reflected in weaker investment."

The Italian government, struggling to impose reforms, was hit by another set of poor data: industrial production fell 1.9pc - the third big fall in four months.

James Nixon, an economist at Societe Generale, said in a note that the data "already suggest that Italy is heading for another big fall in GDP in Q2 and could easily be on course to hit Confindustria's [the main organisation representing Italian manufacturing and services companies] forecast for a full one percentage point drop".

There was bad news in France, too, where the central bank cut its growth forecast for the second quarter to -0.1pc amid falling confidence. The Bank of France said business sentiment fell to 93 in May from 94 the month before. French business confidence hasn't risen all year.

Analysts at Charles Schwab in London said: "The European crisis continues to escalate and we are recommending that investors underweight European equities. Hopes of a sustainable solution in the near term are virtually nonexistent, while contagion fears are rising."

The data initially rattled markets. In early afternoon trading, the FTSE 100 fell 0.6pc, the French CAC lost 0.8pc, the German DAX dropped 0.5pc and the Italian MIB lost 1.1pc. The Spanish IBEX rose 1.1pc.

Meanwhile, the US trade deficit narrowed in April, as both imports and exports fell from record high levels set in March, in a sign of slowing global demand, a government report showed on Friday.

The gap shrank 4.9pc to $50.1bn (£32.5bn), as imports of goods and services dropped 1.7pc to $233bn, the US Commerce Department said.

Exports slipped 0.8pc to $182.9bn. Both imports and exports were still the second highest on record.